Accord Ltd has acquired all the issued shares of Decor Ltd for $300 on the 1 July,
Question:
Accord Ltd has acquired all the issued shares of Decor Ltd for $300 on the 1 July, 2017. The balance sheets of both companies immediately after acquisition are as follows:
Accord Ltd Decor Ltd
Share capital $400 Share capital $200
RE 100 RE 50
Reserves 100 Reserves 50
600 300
Shares in Decors Ltd 300 --
Cash 300 Cash 300
600 300
REQUIRED:
- Explain why the pre-acquisition entry is necessary in the preparing the consolidated financial statements? Using the example above, explain the journal entry line by line.
- What events change the pre-acquisition entry after acquisition date?
If Decor Ltd transferred $8 from pre-acquisition RE to reserves during the year ended 30 June, 2018 how would the entry need to change? Explain in detail, line by line, the journal entry/entries required.